Skip to main content

Know the changing rules before investing in Mutual Funds

 

 

MUTUAL funds are constantly on the lookout to ensure that there are some attractive features for investors. This often takes various forms and do not necessarily remain confined to the actual performance of the fund.

At the same time there are several features offered by the funds that are touted as a big benefit to investors which means that it is for the investor to ensure that they look at the situation carefully and then make the decision as to whether this actually represents a benefit for them.

This will require an element of evaluation and work but this is well worth the effort as they are able to determine whether the benefit has actually materialised for them. Here are a couple of such recent steps that need closer scrutiny.


No exit load:

The fact that mutual funds now do not charge an entry load is common knowledge. In fact since there is a clear guideline on this issue there is no way that the mutual fund can actually charge an entry load when an investor is putting money into a fund. This makes the situation similar for all the funds, as there will not be an entry load on all funds and the investor will get the units at the net asset value (NAV) on the date of the investment.

Now that most of the funds have this same kind of exit load, a fund (Bharti Axa MF) has tried to make a difference by removing the exit load from its equity funds. In such a situation, it would mean that an investor can go in and out whenever they wish. This might seem to be a very good thing at first sight but the real question is whether it actually is so. The worry for this kind of move is that there would be several investors who would misuse this facility to make quick entry and exit but this would be at the cost of the other investors present in the fund.


No charges:

While exit load is one expense that might be incurred by an investor, there is another charge that could be present no matter what the time frame is for the investment. The manner of the investment also doesn't affect this expense which is the fund management expenses and are charged every year and adjusted through the NAV, so that the investor does not actually have to pay the amount separately.

Recently there was a new fund offer from a fund house (Reliance MF) where it decided to not charge the expense, as the asset management company would bear the charge. The fund was an index fund and the idea was to ensure that there was a wider spread and coverage of such a fund so there would be no charge that would be levied for the initial period.


There are two things that are related to this piece of detail.


The first is the time period for which there would not be any charge. The fund can impose the charge when it wants to so there will be an initial time period for which the charge would not be present but ultimately there will be a charge because this is the manner in which the fund earns money.

The second thing is also that the nature of the fund has to be considered for the purpose of the evaluation.


This is an index fund where the charges would be lower than an actively managed fund and this point also needs to be kept into consideration. Passive funds normally have fund management charges between 0.75 and 1 per cent. The investor should evaluate whether such expenses actually provide some form of benefit to them or is it just a small item that is being used by the fund for the purpose of attracting investors to its fold.
There is a difference that the investor will face when the fund is an index fund because the savings will be directly and immediately reflected in the net returns.
For example, a fund mirroring the Nifty will have returns similar to the index so the cost reduction will boost the net figure and it will be visible. Against this, an actively managed fund where such a situation might be present would make the impact difficult to be visible, considering the fact that there is a large variance that is witnessed in the performance across funds and against benchmarks.

 


Popular posts from this blog

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Short-Term Bond Funds

These are schemes that invest in fixed income instruments of short durations. Short-term bond funds with less than one year duration are good investment options provided you have a one-year investment horizon. Lower average maturity of the fund ensures that the fund NAV is not hit much when short-term interest rates move up. We expect the RBI to hike the policy rates by 50 to 75 basis points in this calendar year. That makes it a bit tricky for short-term bond fund investors. Check the average maturity and exit load before you invest in a short-term bond fund. As a rule of thumb, the average maturity should be less than your investment time frame. Some funds do charge an exit load if you log out early. To avoid such a cut in the returns earned, it is better to check at what threshold of time the fund charges an exit load. The funds have a wide range of 'exit load' thresholds. Some charge an exit load if you were to redeem units within 90 days, while there are some that let ...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now